A New Chapter for Vallejo

A judge approved a plan for the city of Vallejo on Thursday, allowing them to emerge from a three-year bankruptcy.

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Vallejo, California

The California city of 120,000 filed Chapter 9 in 2008, as home prices collapsed and it could not afford to continue paying city workers and retirees.

Three years later, the police and fire departments are nearly 50 percent smaller, there are new, leaner, public employee contracts — some forced on workers by the court — and the city just passed a $65 million budget that is balanced.

"While other cities were laying off people (this year), we weren't," says city manager Phil Batchelor, who was brought in last November as a turnaround specialist. When I asked if crime has risen as a result of the public safety cuts, Batchelor didn't say, only pointing out that the number of Neighborhood Watch groups has skyrocketed to 221. Residents "have had to take control of their own destiny."

After years of making no bond payments out of the general fund, the bankruptcy plan calls for reduced payments to start up again next January.

In some cases, bondholders will only end up with about half of what they were originally owed. In other cases, the principal will be paid but the interest will be lowered and deferred.

Retirees and city workers who sought reimbursement for reduced pay and benefits will get about 30 cents on the dollar, according to the city's bankruptcy attorney.

Still, Vallejo's got its work cut out. Home prices are down 60 percent from the peak, unemployment is close to 15 percent.

It still faces the same pension obligations to retirees and current employees because it's part of CalPERS. Not even bankruptcy could take that away. "We must continue to make payments that have been agreed to," says Batchelor.

The city just hired an economic development manager to try to jumpstart local business.

Vallejo is at Napa's doorstep, but no one would ever mistake this old Navy town for wine country. "Vallejo's brightest days are ahead of it," says Ursula Luna-Reynosa, who just started this week.

Ursula Luna-Reynosa

Vallejo has just hired Ursula Luna-Reynosa as its new head of Economic Development.

There is certainly more optimism than a year ago, when Mayor Osby Davis didn't know when the city would ever get back on its feet, jokingly asking, "Would you loan us the money?" (See last year's comments here)

Was it worth it?

Vallejo may have had no choice, but a Bank of America report suggests a lot was spent for little long term gain. "In fact, if anything, the outcome of the Vallejo bankruptcy will likely dissuade other issuers from filing," the report says. "The city paid roughly $10 million in legal fees and wound up with no changes to it's labor costs, which was the impetus for filing."

Vallejo's city manager would disagree. "We have been hit hard," he says. But when compared to the debt debate in Washington, DC right now, he says Vallejo is ahead of the game. "We're stable. We're sustainable. They're not. They can't help us."